Saturday, June 10, 2017

Weekend reading links

1. Excellent Times story on Andrew Left, an "activist" short-seller who makes his money identifying corporate frauds and publicising them, after shorting the company shares,

After he places a bet against the price of a stock, he then publishes research designed to torpedo the company’s value, often by airing accusations of fraud or abuse. This is entirely legal, as long as what he publishes is not itself fraudulent. Left takes short positions in companies across a whole range of industries — Tesla, Valeant, GoPro — and though he makes mistakes, he has an unusually high success rate... If you build enough of a reputation, all you need are some Twitter followers and a website. Left has emerged at the forefront of this new guard... Left invests his own, which exempts him from disclosing his holdings to the public. And now that his work has brought him national attention, he has found that others are willing to make it easier, by leaking documents to him and passing tips. In many cases, Left’s dossiers against his targets are not wholly his own but built using information from a confidential source. He is, in this sense, a bit like a journalist...

From 2006 to 2015, the number of activist short campaigns rose by 1,300 percent, to 1,289. In the past three years, the number of activist short-sellers working globally has nearly doubled, to 72 from 39. Very few have a positive track record. Left does. On average, the value of companies he writes about drop 10 percent in a year, and some drop as much as 95 percent... “I’m an investigative journalist who trades on his information”... Most of us do not care about a random pharmaceutical company meeting its debt covenants. We care about getting medicine at a price we can afford. We don’t care about organic versus inorganic growth, but we worry that our kids will have no coverage if the Trump administration repeals Obamacare. Left’s very timely gift is to connect our daily human concerns to the convoluted operations of the economy, wrapping financial analysis in a moral, populist language that is calibrated precisely to draw maximum attention in a media environment in which screaming is the only way to be heard.

2. Cesar Hidalgo pushes back at the dominance of economists in explaining economic development with what he calls post-neo-classical thought. He weaves together the pop works of Yuval Noah Harari (institutions, from religions to corporations, are shared imagining collectively constructed by humans), Joseph Henrich (human success is due to our ability to learn from others, and adapt and accumulate knowledge through generations), and himself (products matter because of their physical order or information obtained through the imagination of a collective group of humans) to develop a multi-disciplinary explanation for economic growth,

A better conceptualization of the role of imagination in the economy involves thinking of imagination in the context of, first, shared beliefs that help us coordinate our activities with others; and, second, the embodied information that allows products to distribute the practical uses of knowledge and know-how. Can we put these two ideas together? Since creating products is difficult, because making them requires more knowledge than what any single individual possesses, humans need to create networks to accumulate that knowledge and know-how. The creation of these networks is facilitated by the institutions and rituals described by Harari and Henrich but also by the products that we make, since many of these involve devices that augment our communication and transportation capacities. So by embodying imagination into the institutions that help us form cooperative networks, and by embodying imagination into the products that augment our capacity to interact, we expand the capacity of these networks and ignite economic growth. In fact, the diversity and sophistication of a country’s products accurately predict future economic growth—contrary to what neoclassical trade theory would predict, seeing products as epiphenomenal, rather than central to economic development.

3. Lawrence Mishel and Josh Bivens take on the robot scare-mongering, the Robot Apocalypse. They question the recent Acemoglu-Restrepo paper (which finds that six workers lose jobs for every robot per 1000 workers) claiming that the job displacements due to China trade-shock was four times the estimate of job loss through robots. Instead, they focus attention on the real problem at hand,

There clearly are serious problems in the labor market that have suppressed job and wage growth for far too long; but these problems have their roots in intentional policy decisions regarding globalization, collective bargaining, labor standards, and unemployment levels, not technology... We argue that the current excessive media attention to robots and automation destroying the jobs of the past and leaving us jobless in the future is a distraction from the main issues that need to be addressed: the poor wage growth and inequality caused by policies that have shifted economic power away from low- and moderate-wage workers. It is also the case that... our productivity growth is too low, not too high.

Their headline findings,

Technological change and automation have not been the main forces driving the wage stagnation and inequality besieging working-class Americans. There is no historical correlation between increases in automation broadly defined and wage stagnation or increasing inequality. Automation—the implementation of new technologies as capital equipment or software replace human labor in the workplace—has been an ongoing feature of our economy for decades. It cannot explain why median wages stagnated in some periods and grew in others, or why wage inequality grew in some periods and shrank in others... There is no evidence that automation-driven occupational employment “polarization” has occurred in recent years, and thus no proof it has caused recent wage inequality or wage stagnation... wage inequality overwhelmingly occurs between workers within an occupation, not between workers in different occupations. So even if occupational employment polarization had occurred, it could not explain the growth of wage stagnation or inequality... There is no evidence of an upsurge in automation in the last 10 to 15 years that has affected overall joblessness. The evidence indicates automation has slowed. Trends in productivity, capital investment, information equipment investment, and software investment suggest that automation has decelerated in the last 10 or so years. Also, the rate of shifts in occupational employment patterns has been slower in the 2000s than in any period since 1940... The fact that robots have displaced some jobs in particular industries and occupations does not mean that automation has or will lead to increased overall joblessness.

And, their recommendation,

Rather than debating possible problems that are more than a decade way, policymakers need to focus on addressing the decades-long crisis of wage stagnation by creating good jobs and supporting wage growth. And as it turns out, policies to expand good jobs and increase wages are the same measures needed to ensure that workers potentially displaced by automation have good jobs to transition to. For these workers, the education and training touted as solutions in the mainstream robot narrative will be inadequate, just as they were not adequate to help displaced manufacturing workers over the last few decades... The problems afflicting American workers include the failure to secure genuine full employment through macroeconomic policy and the intentional policy assault on the bargaining power of low- and middle-wage workers; these are the causes of wage stagnation and rising inequality. Solving these actually existing problems should take precedence over worrying about hypothetical future effects of automation.

I agree completely with the high-level point being made that robots and automation is becoming a fig leaf to gloss over taking action on fundamental structural features that have contributed to widening inequality and weak growth. The backlash we see in the form of Trump and Brexit, can be addressed only by taking these concerns head on. Unfortunately, the establishment sees the response in terms of band-aid solutions like Universal Basic Income (UBI). If we do not acknowledge and address the fundamental issues, do not be surprised if the house is burnt down.

The idea, sometimes bruited about then, that unemployment was the fault of the unemployed—that they were lazy or incompetent or whatnot—struck me as laughable. I regret to say that this concept has been revived by some of my fellow economists... the insight Marxist theory gave into history and particularly as to political events was striking: the state as the executive committee of the bourgeoisie, the class interpretation of political and social conflicts, and the interpretation of war and imperialism as the conflict of competing national capitalist interests were illuminating and powerful. It appeared more profound than the alternative versions of the economic interpretation of history; they seemed to be mere muckraking, the behavior of venal individuals. Marxism put the system rather than the individual into the foreground... I did not accept ideas of historical inevitability. What the Marxist analysis did say to me, at least then, was that the system of production according to profit established vested interests in destructive activity, most especially war and imperialism, but also oppression of workers and destruction of freedom... the basic values that motivated my preference for socialism over capitalism were (1) efficiency in making sure that all resources were used, (2) the avoidance of war and other political corruptions of the pursuit of profits, (3) the achievement of freedom from control by a small elite, (4) equality of income and power, and (5) encouragement of cooperative as opposed to competitive motives in the operation of society.

This is strikingly reminiscent of today's capitalism,

Berle and Means’s The Modern Corporation and Private Property, which established not merely the concentration of the productive sector into large firms but also the concentration of control within those firms. Even the capitalist stockholders were deprived of power, if not wealth. The absorption of the economy by a small elite implied that the formal democracy and freedom was increasingly a sham; the major decisions on which human welfare depended were being made by a few, in their own interests.

On the concentration of income and political power in the capitalist,

A democratic polity is supposed to be based on egalitarian distribution of political power. In a system where virtually all resources are available for a price, economic power can be translated into political power by channels too obvious for mention. In a capitalist society, economic power is very unequally distributed, and hence democratic government is inevitably something of a sham. In a sense, the maintained ideal of democracy makes matters worse, for it adds the tensions of hypocrisy to the inequality of power... it is today a widespread doctrine, held by conservatives as well as socialists, that concentrated economic interests are more than proportionally powerful in the political process... The reasons offered are perfectly in accordance with ordinary economic principles; there are economies of scale in the political process, so that a small economic interest for each of a large number of individuals is less likely to get represented than a large interest by a small number. So long as the state power can be democratically run, much of this distortion of the democratic process should be minimized under socialism. Income inequalities should be greatly reduced. Economic power deriving from managerial control rather than income should be less easily translatable into political power than under a regime of legally and practically autonomous corporations.

His doubts on the allocative efficiency of the market's price system is illuminating,

The central argument, which implies the efficiency of a competitive economic system, presupposes that all relevant goods are available at prices that are the same for all participants and that supplies and demands of all goods balance. Now virtually all economic decisions have implications for supplies and demands on future markets. The concept of capital, the very root of the term “capitalism,” refers to the setting-aside of resources for use in future production and sale. Hence, goods to be produced in the future are effectively economic commodities today. For efficient resource allocation, the prices of future goods should be known today. But they are not. Markets for current goods exist and enable a certain coherence between supply and demand there. But very few such markets exist for delivery of goods in the future. Hence, plans made by different agents may be based on inconsistent assumptions about the future. Investment plans may be excessive or inadequate to meet future demands or to employ the future labor force... In the ideal theory of the competitive economy, market-clearing prices serve as the communication links that bring into coherence the widely dispersed knowledge about the needs and production possibilities of the members of the economy. In the absence of suitable markets, other coordinating and communicating mechanisms are needed for efficiency. These come close to defining the socialist economy, although admittedly wide variations in the meaning of that expression are possible.

He makes the case for socialism based on the give values - efficiency, separating political decisions from selfish economic interests, freedom, equality of income and power, and the stress on cooperative as against individualistic motives. In particular, he argues that as long as state power can be democratic, the distortions of democratic process due to concentration of wealth and inequality, can be minimised under socialism. And the same with freedom and democracy.

He acknowledges a representativeness bias with socialism - the empirical evidence of the negative contribution of Soviet style of socialism, with its authoritarian political system, is mistaken as the ideal representative of socialism itself.

While he refrains from saying that socialism is superior to capitalism, he does point out that the co-existence of freedom and democracy, and equality of income and power is not only not the exclusive preserve of capitalism and is perfectly plausible under socialism, but also that capitalist dynamics that can come in the way of their co-existence.

His conclusion should serve as a reminder for ideologues from all sides, especially the free-marketeers,

The evidence, it seems to me, points to the view that the viability of freedom and democracy may be quite independent of the economic system. There can be no complete conviction on this score until we can observe a viable democratic socialist society. But we certainly need not fear that gradual moves toward increasing government intervention or other forms of social experimentation will lead to an irreversible slide to “serfdom.”